Private Finance's Weekly Mortgage Memo - 12th April 2021
This is our take on what is currently happening in the mortgage market. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.
- Sweeping criteria changes to lending to non-UK Nationals
- Borrowers slow to take up 95% mortgages
- Long term fixed rate mortgages proving more popular with borrowers and lenders alike
Sweeping changes to lending to non-UK Nationals
The world of lending to non-UK nationals is seeing some major changes with lenders tightening criteria. This follows the introduction of the EU Settlement Scheme, whereby borrowers who are EU/EEA/Swiss citizens (excluding Republic of Ireland) will need to evidence their permanent right to reside in the UK or their settled/pre-settled status, however this space has consequently become a bit of a minefield, with some changes affecting all non-UK Nationals and others only those from the EEA…
- We knew change was coming in this space following Brexit, but it appears that lending to all foreign nationals is being affected to some degree, and the changes vary between lenders. For instance, with Virgin Money borrowers will simply need to provide their “Share Code” when submitting an application and once validated applications will be treated as per UK Nationals. Nationwide are making changes from the 26th of April making their maximum LTV of 75% for applicants without indefinite leave to remain/settled status, moreover borrowers will need to evidence their residency status, and must have a minimum of 2 years and 6 months remaining if on a points-base visa. Scottish Widows and Halifax brought in these changes last week, with the added caveat that all non-UK nationals will be affected and permanent right to remain will be required for all applicants who do not meet the following criteria: >5 years in the UK, >100k income or an LTV <75%.
Borrowers slow to take up 95% mortgages
Following the initial flurry of lenders returning to the 95% LTV market lenders continue to slowly return, with the West Brom and TSB coming back last week. However, with little interest rate movement we have so far not seen much real demand for people taking these products forward to application.
- While we have had some potential borrowers enquiring about these products, take up has been very low, most likely due to the around 4% interest rates on these products. Given this significant cost, it makes more sense for borrowers to try and increase their deposits if they can and wait to get a better deal at a lower LTV or many have opted to just wait and see if increased competition reduces these rates over the next few months.
- These products tend to be offered on longer terms, and while there is trend towards this for other buyers, for first-time buyers who 95% products are really aimed at, being locked into a 5-year fixed rate mortgage at a high interest rate is not particularly palatable, not just due to the high cost of borrowing, but the lack of flexibility. Where we have had interest, it has been on 2-year fixed rate products at this LTV, such as Bank of Ireland’s offering, as paying these sorts of rates can be seen as a means to an end in the short term.
Long term fixed rate mortgages proving more popular with borrowers and lenders alike
Longer fixed term mortgage rates have seen somewhat of a renaissance of late, with highly competitive interest rates on offer at lower loan to values and a shift in the types of properties people are buying. During the darker days of the pandemic many lenders were pushing borrowers towards longer fixed term products (3 and 5-year) to cushion the potential risk there was in lending in an uncertain housing market and for higher LTV products where there is considerably more risk, some lenders are still only offering products on these longer terms.
- We have seen an increased number of buyers opt for these longer-term fixed rate products, not just on account of the interest rates, but we believe because the pandemic has led to people buying properties that they could conceivably stay in for longer, for instance, those that could accommodate a growing family or working from home in the longer term for instance and this has said to an increased demand for longer terms.
- For lenders longer term rates ultimately mean more interest paid and borrowers remaining clients for longer, plus they have the added benefit of reducing the risk of the loan itself, so it is a win-win situation and we expect this space to remain highly competitive in the coming months and years, with any potential rate increases likely to be passed on more significantly to shorter term borrowers.
- The economy still remains in an uncertain position and an interest rise will likely be on the cards in the medium term, thus more borrowers are seeing the benefits of a longer-term rate from a security perspective.